Opec: The oil cartel

Opec's Vienna headquarters

The Organisation of Petroleum Exporting Countries (Opec) has set itself a clear-cut and seemingly simple goal.

Its eleven member countries aim to keep the international price of crude oil within a range of $22-$28 a barrel.

When the price [of oil] falls it creates real pain... they have to feed and give welfare to their people, the same as Western countries

Tony Scanlon

To do that, the countries control the amount of crude oil they export and avoid flooding or squeezing the international marketplace.

Established in 1960, its members account for over half of the world's crude exports.

But the oil market is notoriously difficult to balance - demonstrated by the rollercoaster of prices over the last few years.

Hawks and doves

Member states of Opec do not necessarily have identical interests and often find it difficult to reach consensus on strategy.

Countries with relatively small oil reserves or others like Iran and Nigeria with large populations and few other resources, are often seen as "hawks" pushing for higher prices.

Meanwhile, producers like Saudi Arabia and Kuwait, with massive reserves and small populations fear that high prices will accelerate technological change and the development of new deposits, reducing the value of their oil in the ground.

US pressure has come to bear on these two latter producers as probably the most likely to see the advantages of higher production and lower prices.

And the need to maintain good relations with other member countries and with the US is almost always a part of price considerations.

There are also ongoing disputes over whether member countries are actually sticking to the agreed quotas.

Greed?

Opec is often portrayed in the West as a greedy and untrustworthy cartel, cynically manipulating the price of oil.

Opec history

1960 - founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela

1965 - Moves from Switzerland to new headquarters in Vienna, Austria

1973 - High oil prices cause world economic crisis

1990 - Iraq anger at Kuwait over-production sparks Gulf War

1998 - World oil price drops to $10 a barrel

2000 - Opec puts squeeze on production to boost prices

2001- Opec puts pressure on non member countries to cut production

But many of the so-called 'oil-rich states' are rich in very little else. Crude oil is their only export, making them uniquely vulnerable to world oil prices.

So when prices fell to $10 a barrel in 1998, it had a devastating effect on their economies.

Tony Scanlan, of the British Institute of Energy Economics, says: "In the US, Opec is viewed as a cartel and therefore something to be smashed - which is not a helpful way of thinking about it.

"The one thing the Opec countries all have in common is their absolute reliance on one product - oil."

According to Mr Scanlan, the Opec countries can not afford to treat oil "as just another commodity".

"When the price falls it creates real pain. They have to feed and give welfare to their people, the same as Western countries," he says.

In search of stability

Part of the West's fear of Opec dates back to the oil shock of 1973 that sent the global economy into crisis.

The finger of blame was also pointed at Opec when prices spiked in the send half of 2000 and prompted fuel protests across much of Europe.

But the west is gradually waking up the fact, that in recent years, Opec has been trying to insure market stability through its price range mechanism.

And, as more sources of oil come to market, consumer countries are also less reliant on oil from Opec countries.